Why Does My Escrow Payment Keep Going Up?

If you have a fixed-rate mortgage, you might be surprised to find that your monthly payment has increased on your most recent bill. If you’ve noticed an increase in your bill, chances are you should look to your escrow payment. Your escrow payment may increase from time to time, but if you notice a steady increase, it is important to understand why.

In relation to real estate, an escrow account is a portion of a homeowner’s monthly mortgage payment that is deposited into an account meant to cover mortgage-related expenses like insurance and property taxes. Your escrow account is set up at the time you take out your mortgage loan. There are some instances where a homeowner can potentially opt out of an escrow account—like if you put more than 20% down. But in most instances, a lender will insist on the inclusion of an escrow account to ensure that essential payments are made. If you do not have an escrow account, you will be required to make sure you are paying for the payments typically covered by an escrow account.

When you get a mortgage loan, your lender will set up an escrow account for you. Your monthly escrow payment will be based on an amount that will cover your homeowners insurance, property taxes, and any required reserves. Once your lender determines the cost of expenses to be covered by your escrow account, they have 45 days to provide you with a statement outlining what the payment will be and when they are due. There are limits to how much money your lender can require you to pay in escrow.

Your lender recalculates your escrow payment yearly. There are three reasons your escrow payment may increase: 1) your homeowners insurance premium has increased, 2) your property taxes have increased, and 3) your servicer previously miscalculated your fees. If your lender determines your monthly payment needs to change, it will be explained in your yearly escrow analysis.

It is also possible that you could have an escrow shortage.  This is when the money in your escrow account is insufficient to cover the cost of your mortgage-related expenses. When your escrow account is short, your mortgage provider will give you notice along with an explanation. Even if the shortage is not your fault—for instance, your property taxes increase—it is still your responsibility as a homeowner to make the payment. To cover the cost of the shortage you can either pay the amount in full or make higher monthly payments.

Your escrow account protects your lender in the event that you cannot pay expenses related to your mortgage, but it can also protect you as a homeowner. There are plenty of consequences and penalties you can face if you are unable to pay your property taxes or homeowners insurance. Monthly escrow payments allow you to spread these expenses out, making it easier to budget and preventing you from falling behind on payments.

While your mortgage payment and interest may remain the same, your escrow payment can vary from year to year. Don’t let this increase take you by surprise. Prepare for these changes by paying attention to communications from your mortgage lender and staying on top of your property taxes and homeowners insurance.

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